Monday, July 02, 2007

Are GMs overoptimistic in their signings?

Economist Steve Walters had an article recently on the Baltimore Orioles and "optimism bias," which you can read on the "Wages of Wins" blogsite.

Optimism Bias is the tendency of human beings, when considering a decision, to overweight the positive possibilities of the decision, while underweighting the negative ones. (Here's the Wikipedia definition.)

According to Walters, optimism bias is rampant in baseball:

"Economist John Burger and I have researched the baseball labor market, and (in a paper that will soon appear in the Southern Economics Journal) found that teams, on average, under-value consistency and over-value players who produce eye-catching but rare “big years,” resulting in considerable red ink."

This is very interesting stuff, and I'm excited about reading the paper when it comes out. For now, Walters argues that this bias is part of the reason the Orioles are in last place. He argues that the O's signed three relievers over the winter -- Danys Baez, Jamie Walker, and Chad Bradford -- and all three have had careers with lots of ups and downs. Orioles' management must have been seduced by these guys' good years, and ignored their bad years – optimism bias at work.

I'm puzzled by this. Admittedly, I don't follow the Orioles, but looking at their 2007 stats, it does seem that Walker and Bradford are doing pretty much what you'd have expected from their recent years. The third pitcher, Baez, is indeed a disappointment, but he's even worse than his worst year ever, so you can't argue that you should have been able to predict his collapse. And while his 2006 ERA was indeed much worse than his 2005, the difference in his basic stats appears to be only about six extra hits, which is partly compensated for by three fewer home runs.

My take is that while optimism bias might be a factor, you can't see it in these three signings. Unless there's something going on deeper than you can see in the stats ... as I said, I don't follow these guys much.

6 Comments:

I was just in my coworker's office today, lecturing as I frequently do about sports statistics. I was making the case that the Orioles' way of evaluating talent is systematically flawed.

I was theorizing something similar to the article, that the Orioles do not understand that a player's stats are only inclomplete evidence of his underlying talent.

Take pitchers for example. An ERA of 4.5 doesn't mean he's a 4.5 pitcher. It means his true underlying talent can be described by a probability distribution centered on 4.5. The number of batters faced, the shape of his home stadium, the luck involved, and the talent of his defense each affect the shape of the distribution.

In '97, the O's were a missed fan interference call away from heading home up 2-1 games on the Yankees in the ALCS. The owner, Peter Angelos, had been giving the green light to expensive and aging free angent acquisitions, and owned one of MLB's priciest payrolls. Starting in '98, the wheels came off the team, and all that payroll bought several losing seasons in a roll.

By 2000, the fire sale began, and Angelos insisted on a new and saner personnel doctrine. He significantly reduced payroll and demanded his GMs defend every acquisition as a smart and frugal move.

My theory is that three factors conspired to bring in overpriced mediocre talent. (#1) The intense pressure, both from the ownership and from the fans (market), to bring big talent into town immediately. (#2) The simultaneous frugality insisted on by the owner. And (#3) the basket case of the Orioles deterred the truly talented players from coming to town.

These 3 factors left the Orioles with players like those mentioned in the article, players who appeared on the surface to be talented, but whom other teams properly valued. The surface appearance of talent satisfied the owner so he would approve the transaction and be satisfied the GM(s) were bringing in talent at an apparent bargain price.

Other teams have similar pressures, but they don't have the schitzophrenic pressure to make immediate big-time free agent signings at below-market prices. They also probably see through the surface stats.

Phil, speaking as a psychologist, it's not so much that Walker, Baez, and Bradford have underperformed, but these three were supposed to solve all of Baltimore's problems, including poverty, homelessness, and the little feud that Angelos has with the Nationals existence, in addition to making sure that the O's went 162-0. That's the optimism bias. The fantasy is that not only will these guys live up to their best years, but somehow, they'll have some sort of effect on everyone else and world peace will break out. In reality, they probably represent a decent upgrade to the three guys whom they replaced and are probably worth a win or two between them. But in the off-season, everyone has a theory as to why "This is our year." I live in Wrigleyville. I know of what I speak.

That's fair enough. I remember back when the Blue Jays signed Dave Collins and/or Bill Caudill ... it was the same thing, optimism that this was the guy that would fill the hole and turn everything around.